Billion dollar investment in Indonesia's infrastructure

Apr 12, 2017 11:44Laura Angelstorf,
Switzerland Global Enterprise

Indonesia is making major investments in the expansion and modernization of its overburdened infrastructure. Ambitious road and rail projects along with the construction of additional power plants will help the fast-growing economy and population become more efficient. But the Southeast Asian island nation remains difficult terrain for international investors – even Swiss SMEs should prepare well for entry into this market.

Greater Jakarta is home to roughly 30 million people. Due to decades of neglect for its infrastructure, it is in a state of almost constant gridlock. Clogged streets and crowded public transportation are typical; two to three-hour work commutes are considered normal. This is about to change. Billions of US dollars are being invested in new expressways and train lines.

The first of several projects are scheduled to start bringing relief soon. The initial section of a 24 km subway line connecting north and south Jakarta is schedule to begin operation in 2019. An additional, significantly longer (87 km) subway line between east and west Jakarta is currently being planned. A new light rail network connecting Jakarta's suburbs with its central business district is scheduled to begin operation this year.

New expressways

There are also plans to improve car travel: six expressway are currently in planning or construction phases. Eleven overland routes are also planned, which will connect the city and its suburbs. All of these routes will be open by 2021.

Transportation between the country's other major cities is also being improved with the construction of the Trans-Java, a roughly 1000 km-long continuous highway. There are plans for modernizing the existing train route between Jakarta and Surabaya and for building high-speed rail to drastically reduce travel times between Java and Bandung.

"Outside of the economically better developed main island of Java, where more than half of Indonesia's more than 250 million inhabitants live, the need for progress is particularly great. But it can often take decades from planning to construction," says Angela di Rosa, Southeast Asia consultant at Switzerland Global Enterprise. "Successful market entry depends on choosing the right local partners and requires patience, persistence and financial resources. The Indonesian market should be approached on a long-term basis – immediate success is the exception, not the rule. Nonetheless, this current wave of growth offers promise," according to di Rosa.

Public-private partnerships for new power plants

Delays can also be expected in construction of the urgently needed power plants, which is why foreign private investors remain reluctant. The government, however, is very eager for their involvement. Authorities are seeking primarily private investors from abroad to finance the expansion of the electricity generation capacities. The construction of additional power plants for almost 100 billion US dollars is planned for completion in 2024, with 70% of this amount coming from so-called public-private partnerships (PPP).

The construction of freeways, train lines and power plants is not a simple matter in Indonesia. Chinese and Japanese investors are currently financing and building a majority of the projects. Opportunities for investors and suppliers – including from Switzerland – remain solid. Much patience is needed for entering the Indonesian market.